Aug

30

One of the passengers I got to spy on during my time as Dad's designated driver for joy riding with actual and would-be authors was the renowned painter Thomas Hart Benton. Benton had hinted that he might want to publish his memoirs so Dad had me drive them up to the Cloisters when Benton visited New York. Benton said that he "missed the Depression" because Benton & Bowles was doing so well as one of the first independent advertising agencies that he never knew anything even close to hard times in his business. Google employees probably enjoyed a similar insulation until the price of GOOG common stock and their stock option mansions started going south, but I doubt there is much euphoria in the cubicles right now. Paid search is still the only business that Google has that makes money, and the extraordinary technical ingenuity of their employees may end up being like Xerox Parc — great for the country and the world, terrible for the company paying the bills. The "mainstream" journalists are accurately reflecting the general public's disenchantment (9% Congressional approval rating), and the financial press is pessimistic is for the same reason that most people living in the major media centers of the United States are in a sour mood: they have seen their principal assets — their homes — go literally in the tank.

I agree with Dr. McDonnell that paid search advertising has certainly had an effect on newspapers, but eBay, Yahoo, Craig's List, Amazon and the decline and fall of the department store have cumulatively had a greater effect. Radio has actually seen revenue growth, if you included the satellite broadcasters. Their profit problems have come from the fact that, like the movies, radio has become a hits business; it is no longer possible to be a low cost producer. As Dr. McDonnel says, general circulation magazines have become nearly obsolete, but their more important, if less noticed, cousins the trade magazines have held up very well and those publications are definitely not replacing their reporters with younger, prettier and cheaper talent. Quite the contrary, they are offering a refuge to the experienced print journalists who can actually produce 500 words in an hour that answer the basic questions of Who, What, When and Where.

The worst is certainly not over for our business out here in LaLaLand. If I have still managed to make more money this year from buying and selling common stocks than from our "real" business, it is because the business's income has done a Margaret Hamilton over the past few months. In the end, Dr. McDonnell is right on the money. The valuations in the companies that I look at — those with belt, suspender and Velcro-cinched balance sheets — have become as compelling as they were five years ago. It is time to throw up in your own waste basket and buy.

Perry Metzger counters:

Trade magazines in electronics are a shadow of what they once were. Every issue of EE Times, the biggest trade rag in the electronics business, got smaller and smaller for a few years, but then they switched from tabloid format to magazine size to save additional money and that’s stopped for a little while. The size of the reporting staff has gone down, too. Same thing is true for almost all of the ad supported industry rags I’m familiar with.

It is true that the only business at Google that makes money is paid advertising, but quite certainly not simply on search-based advertising. They own large web ad networks like DoubleClick that were profitable before Google bought them, and I suspect they make money on things like Gmail and Google Reader because of the advertising. They’re currently losing money on their video properties, but they’re starting to change that as well — they only began to attempt to monetize them in the last couple of months.